The Industrial Revolution brought many changes to Leeds, which in 1782 was surrounded by fields, and with no smoke from factory chimneys blackening the horizon. The town's fortunes still relied on the textile industry, in terms not just of marketing but of manufacture. Not only woollen textiles were made here; Leeds was also a major centre of the flax industry. But it was neither wool nor flax but cotton manufacture which began the industrial revolution in Leeds.

In 1790, Richard Paley built two cotton mills in the Bank area to the east of the town centre. These used steam power to drive the spinning machinery, and were the beginning of the factory system in Leeds. But Paley went bankrupt, and although there were other cotton spinning factories in the town the industry had died out in Leeds by 1810.

The woollen industry however, thrived. The demand for woollen cloth increased both for the home market and for export. Also, England was at war with France, which meant an increased demand for military uniforms and blankets. But despite the mechanisation of some stages of cloth manufacture, for example the use of water power for fulling, cloth manufacture was still a cottage industry, and Leeds was a marketing and not a manufacturing centre.

It was Benjamin Gott who saw the advantages of bringing all the manufacturing processes together under one roof, and he did this in 1792 at his new factory, Park Mills. But despite the profitability of Park Mills, others were slow to follow Gott's example, until in the period of rapid industrial and economic growth of the 1820s, numerous woollen mills were built in Leeds.

There was a corresponding decline in domestic cloth production, despite opposition to the factory system by cloth workers. By the 1820's the number of clothiers attending the Leeds cloth halls had halved, although up until the 1840's some cloth was still produced by independent clothiers working at home.

Leeds might never have become the centre of the British flax industry had it not been for John Marshall, who came to Leeds in 1790, and built his factory in Water Lane. He used new methods of spinning flax, developed by Matthew Murray. Also, cheap coal was locally available, and Baltic flax could be easily imported through Hull using the Aire and Calder Navigation. Soon other new mills were built, some like Benyon's in Holbeck and Hives and Atkinson at Bank Mills by men who had worked for John Marshall. By 1821 there were 19 mills, and this had risen to 37 by 1855. In 1850, when the flax industry was at its peak, Marshall's factory used 10 per cent of the whole of the flax imported into Britain.

The mechanisation of the textile industry generated a need for engines, machinery, and tools, and was the foundation of the engineering industry in Leeds. Matthew Murray had worked with John Marshall at Scotland Mill on the development of flax spinning machinery. He moved with Marshall to the mill in Holbeck, and in 1795 set up in business for himself. Later, with partners David Wood and James Fenton he made steam engines, locomotives and textile machinery at their Round Foundry next to Marshall's Mills on Water Lane. A year later Taylor, Wordsworth and Co. began making textile machinery, as did Samuel Lawson of the Hope foundry in 1812, and Peter Fairbairn at the Wellington Foundry in 1826. Murray pioneered the locomotive industry in Leeds, which was carried on by the Hunslet Engine Company and others.

Textiles were the basis of the economy of Leeds in the nineteenth century, and this created a need for cheap coal, machinery, transport, building materials and labour. So other industries, like the engineering industry, making not only heavy machinery, but hackle pins, gill pins and other small items needed in the textile industry came to Leeds. Other industries followed, like the leather industry and this created a need for hides and tanning agents, and produced waste products used in other manufacturing processes.

Industrial expansion led to an increase in the labour force, and this meant that new houses were needed, and so were domestic goods like furniture and pots and pans. As the wealth of the town grew, people had more money to spend, and so an opportunity arose for the manufacture of luxury goods to stock the new shops which were being built in the town.